The State Bank of Pakistan’s report for the first quarter of the current financial year, 2011-12, shows that the economy is sputtering. The good news is that inflation is down, though there are several factors which may cause it to shoot up again later in the year. But the bad news is that growth has not recovered, and the State Bank has already predicted that the GDP target, 4.2 percent, will be missed. There is also optimism that the Coalition Support Fund, bilateral aid from the USA, and PTCL privatization proceeds will be realized. Without these, the report points out, the revenue proceeds of the government are not expected to meet the target. One place at which the government has acted, that of reducing expenditure, has been mentioned, and the report has duly noted that the deficit, 1.5 percent in the first quarter of last fiscal, was 1.2 percent this year. This, the State Bank noted, was because of the increase in revenue, which was still not enough to meet the budget deficit target for the fiscal year. The report also noted that another important source of federal revenue, the sale of third-generation mobile telephone licences, also had to be realized if revenue targets were to be met. The report did not say so, but it now appears inevitable that those sectors so far escaping the tax net, most notably agriculture, be brought into it. The government may tide over this fiscal year through the 3G licence sales, but what will happen the next year? That has not been mentioned in the report.

The real need is for the government to do two things: first, it must reduce its expenditures, and second, it must increase its revenues. It can only increase revenues by reforming a tax machinery which is corrupt and inefficient, and it must end the protection that special interests expect virtually as a matter of right. But while that might have to wait until the budget due in June, an immediate step would be for the government to crack down on extravagance, noticeably the luxurious lifestyles that officials, both elected and permanent, have grown used to leading at the taxpayer’s expense. Another area of concern expressed in the report is whether the provincial governments will generate the surpluses that were expected. If they do not, then the federal revenue targets might not be possible to achieve.

The State Bank report should be taken very seriously by the government, as it has been prepared by what is after all a government institution, and it will naturally give all the weightage to the government’s explanations that it could desire. There is just enough time for it to change its way of operation to one more responsible, and more accommodating of the realities on ground, and which have as their purpose, the true reason for government, solving the people’s problems, than at present.